1MDB to fully redeem Cayman Islands funds 'in the coming months'

PETALING JAYA: 1Malaysia Development Bhd (1MDB) has now set a vague timeline of "in the coming months" to fully redeem funds parked in the Cayman Islands, after having committed to do so by November this year.
In a statement issued on Nov 6, 2014 in conjunction with the release of its full-year results, 1MDB stated that it had redeemed US$1.4 billion (about RM4.7 billion at the exchange rate then) of the funds parked in the Cayman Islands and that the remainder would be brought back last month.
Reports have put the amount of funds in the Cayman Islands at RM7.18 billion.
According to a statement published on its website yesterday, in a bid to once again win over its detractors, however, 1MDB chairman Tan Sri Lodin Wok Kamaruddin said repatriating the funds parked in the Cayman Islands to Malaysia would have exposed them to fluctuations on the foreign exchange market.
"In order to ensure that 1MDB maintained a strong liquidity position with a truly diversified global portfolio, these funds were invested in a 1MDB subsidiary that was registered in the Cayman Islands. However, the company has already redeemed a significant portion, US$1.4 billion, of the funds and expects to redeem the remaining amount in the coming months."
1MDB did not respond to questions seeking an explanation on the matter.
The ringgit has declined by 6.4% against the US dollar year-to-date.
To recap, 1MDB's investment in the Cayman Islands was initially for its joint venture with a Saudi Arabian company. When the deal fell through, 1MDB's investment was converted into a fixed-income instrument in Murahaba notes, which is essentially a loan, with an annual interest rate of 8.75%.
Lodin said the loan was paid back in full, for US$2.32 billion with a profit of US$488 million, in 2013.
In the 2,000-odd worded statement, Lodin once again defended the government-owned strategic development company's move to invest in the Cayman Islands, saying, among other things, that there is nothing unusual about companies of its size investing their funds in the Cayman Islands, which is one of the largest registered fund jurisdictions internationally.
" Thousands of international blue-chip companies have funds regulated by the Cayman Monetary Authority, including over 200 Malaysian companies, many of which are household names," he added.
The statement also addressed its critics' claims of preferential treatment on power contracts, overpayments for land, overpayments for power assets, finance costs and interest rates paid by 1MDB and 1MDB's funding and debt levels.
This is the second explanatory statement 1MDB has issued in the last three months, in the wake of unabated criticism against the group, in the run-up to an expected initial public offering (IPO) of its power business.
Reuters reported last month that 1MDB has planned meetings in January with potential cornerstone investors in the IPO which is expected to value around US$3 billion.
The group registered a loss of RM665.3 million for the financial year ended March 31, 2014, attributed largely to higher finance costs of RM2.4 billion, compared with RM1.6 billion in the previous financial year, as part of its strategy to grow the asset base. The value of the group's asset base increased to RM51.4 billion, compared with RM44.6 billion the previous financial year, with borrowings increasing from RM36.2 billion to RM41.9 billion. Total revenue increased by 64%, from RM2.6 billion to RM4.3 billion.
At present, 1MDB's portfolio includes the 15 power and desalination plants in five countries that comprise its energy business, as well as an extensive property portfolio which includes 70 acres of prime real estate currently being developed as TRX (Kuala Lumpur's first dedicated financial district), 495 acres of land on the site of the old airport in Sungai Besi earmarked for Bandar Malaysia (a mixed-use urban development) and 234 acres of land in the centre of Air Itam, Penang.